Defined benefit (DB) pension funds are “working against” the UK government’s productive finance agenda, according to Pieter Steyn, head of GB clients at WTW, speaking at the Pensions and Lifetime Savings Association (PLSA) annual conference in Manchester this week.
Steyn highlighted that the government’s agenda is driven “very much by its economic growth agenda”.
He said: “There is a strongly held view in government that if pension funds were to invest more of their assets in what they call productive finance assets, then that will act to stimulate economic growth. That has been driving much of the consultations over the summer.”
In July,cChancellor of the exchequer Jeremy Hunt announced a number of consultations referred to as Mansion House compact aimed at unlocking up to £75bn of additional investment from defined contrition (DC) and local government pension schemes (LGPS) to help grow the UK economy and deliver benefits to savers.
Productive assets are “assets that create productive capacity” and make a difference to the real economy and generate a return every time, Steyn explained.
He added that these assets are typically illiquid and while DB pension funds have in the past invested in these assets, they have “now stopped making allocations to these assets”.
He said: “Not only have they stopped, but they have also actively reduced their allocations.”
He acknowledged that the majority of schemes are in surplus and therefore in the process of de-risking, becoming more liquid and funnelling into the insurer’s regime.
Steyn added that it will require some time for the funds to get into the insurance regime to be reinvested in productive finance.
As a result of this, he said that the DB pensions industry is “working against the productive finance agenda, not deliberately, but because the DB industry has a different incentive”.
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